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Ukraine Protest Violence Corners Yanukovych as Choices Dwindle

A protester throws a brick towards riot police during the storming of the presidential administration building in Kiev, on December 1, 2013. Photographer: Genya Savilov/AFP via Getty Images

Dec. 3 (Bloomberg) -- Ukraine’s biggest protests in almost
a decade are pushing President Viktor Yanukovych into a corner.

As throughout its history, the former Soviet nation of 45
million is torn on whether to align itself to Russia or Europe.
After years of shifting alliances, Yanukovych last month opted
to seek closer ties with his eastern neighbor. That ignited the
biggest demonstrations in nine years, which turned violent over
the weekend as a police crackdown fueled demonstrators’ ire.

“There is no optimal scenario for Yanukovych,” Alexei
Makarkin, deputy head of the Center for Political Technologies
in Moscow, said by phone yesterday. “He showed himself to be an
unreliable partner for the West, raised lots of doubts in Russia
and domestically transformed his opponents into real enemies.”

Yanukovych has a choice between crushing the protests and
negotiating with the opposition. The first risks triggering
escalation and alienating voters 14 months before presidential
elections. The latter undermines his authority and weakens his
bargaining position with Russia and the European Union.

As Russian President Vladimir Putin dismissed the Kiev
protests as a “pogrom” rather than a revolution, predicting
they will soon dissipate, the Ukrainian leadership sent mixed
signals. Yanukovych, who leaves today for a three-day trip to
China, condemned police violence and promised increases in wages
and pensions. Prime Minister Mykola Azarov said the rallies were
getting out of control and showed “signs of a coup attempt.”

Bonds, CDS

Those diverging messages kept investors guessing about the
country’s future, boosting borrowing costs and credit risk. The
yield on the government’s 2023 dollar bond rose 60 basis points,
or 0.6 percentage point to a record 10.57 percent yesterday. The
cost to insure the country’s debt for five years against non-payment using credit-default swaps surged 75 basis points to
1,056, the world’s third highest behind Argentina and Venezuela,
according to data compiled by Bloomberg.

The protests echo the Orange Revolution nine years ago,
when hundreds of thousands stayed on the streets in subzero
temperatures for months. The peaceful vigil eventually
overturned Yanukovych’s victory in a presidential election that
protesters believed was marred by fraud.

This year’s demonstrations are the biggest since then.
Organizers said as many as half a million people joined protests
in downtown Kiev in disappointment over the government’s
decision to pull out of an EU trade deal. The rallies, which
also spread across the nation, turned violent, leaving hundreds
of people injured as riot police battled demonstrators.

First Time

“Nothing like this ever happened in Ukraine,” Gleb
Pavlovsky, president of the Effective Policy Foundation in
Moscow, said by phone yesterday. “In 2004, there was nothing
like that, no force was used against the public.”

The response to the violence was overwhelming as a the
crowd swelled in downtown Kiev, seizing public buildings, facing
the Berkut riot police and urging people around the nation to
start a general strike.

Clashes continued, jolting opposition leaders into action.
Boxing world champion Vitali Klitschko and Arseniy Yatsenyuk,
the head of jailed ex-premier Yulia Tymoshenko’s party, raised
the stakes and called for a vote of no-confidence and early
elections.

As the street violence attracts global attention, Ukraine’s
polarization between east and west is more visible than ever,
said Andrey Makarychev, a professor at the University of Tartu
in Estonia.

‘Better Articulated’

“It is the ruling regime that provoked people to go to the
streets,” Makarychev said by e-mail. “The issue at stake is
not only the fairness of the electoral procedures, but something
much better articulated -- the European identity of the
country.”

The EU and Russia, which buy about a quarter of Ukrainian
exports each, are competing for influence over the country
that’s an essential transit route for Russia’s gas shipments to
the West.

European leaders yesterday reiterated that the door is
still open for Ukraine. The EU is ready to sign a trade
agreement if authorities “demonstrate the necessary political
will” to meet its conditions, European Commission spokeswoman
Pia Ahrenkilde Hansen told reporters in Brussels.

Yanukovych has said the terms of the EU deal don’t provide
sufficient protection from possible Russian trade sanctions.
Russia disrupted imports from its neighbor in August in protest
of the proposed agreement. Ukraine’s economy is going through
its third recession since 2008 and talks for an International
Monetary Fund bailout have failed.

Change Conditions

Ukraine wants to “change some conditions” of the trade
pact, Yanukovych said in a television interview yesterday,
adding that he’s still committed to European integration. In the
meantime, the government will this week start talks with Russia
over the gas price Ukraine pays to its eastern neighbor, which
supplies 60 percent of its consumption of the fuel.

Yanukovych has played a balancing act since he became
president in 2010, in part serving the interests of the powerful
businessmen who prop up his power, Jan Techau, director of the
Brussels office of the Carnegie Endowment.

“Getting too close to the EU would endanger the oligarchs’
business model,” Techau said by phone yesterday. “Yet they
also don’t want to get too close to Russia. The political
situation seems frozen in Ukraine between the oligarchs not
wanting a full tilt to either the EU or to Russia and the
populace that’s disappointed.”